Number two seems like the easier solution (I don't have access to a
lathe), but I'm not sure how well the ebony will take the glue.

I thought the point of draw-boring M&Ts was that they're held together
mechanically, so glue isn't as critical. If you're concerned, you
could sand the ebony's glue surface with a very coarse grit and use
epoxy.
I think I'd consider either using a round dowel with a separate plug,
or just using a square peg in a square hole. As long as it's cut
accurately, you shouldn't need glue at all, especially if the hole and
peg are tapered a bit.
And I'll second the recommendation to look at the recent issue of Fine
Woodworking - even looking through it at your local library or
bookstore should get the basics across.
Good luck,
Andy